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Working for a foreign employer – home office in Poland and potential tax risks (PIT, CIT)

The essence of remote working is that the place of work does not always have to be the same as the employer’s registered office.

The COVID-19 pandemic has forced employers to adapt to the new conditions associated with the transition to remote work. It is becoming more and more popular every year – many employers declare that they will stay with this form of work even after the pandemic ends.

There are many benefits associated with remote working, but given it’s relatively new role, employers should also be aware of the potential tax implications associated with it.

What should be taken into account in the case of hiring an employee in Poland  to work remotely for a foreign employer?

First of all, it is important to distinguish between telework, which in principle is permanent and regularly provided in this mode and remote working, which is by definition is a temporary solution. Furthermore, telework is regulated in the Polish Labour Code, while remote working has so far only been regulated in the Temporary Act (Act on Special Solutions for Preventing, Counteracting and Combating COVID-19, Other Infectious Diseases and Crisis Situations Caused by Them). However, remote working will soon be regulated in the Labour Code (Act of 1st December 2022 amending the Act – Labour Code and certain other acts).

It should be noted that the tax consequences of working remotely of the territory of a given country depend primarily on the tax residence of the employee, i.e. his residence for tax purposes. As a rule, the double taxation treaty concluded between Poland (place of work) and the country of residence of that employee applies here. Poland has concluded DTT’s agreements with more than eighty countries, including all EU and EEA countries.

PIT – basic principles and tax implications

According to PIT Act (Article 3 (1) (1)) natural persons, if they have their place of residence in the territory of Poland, are subject to taxation on all their income (revenue) regardless of the location of the sources of revenue (unlimited tax liability).

A natural person is considered to be a person residing in Poland who:

  • has a centre of personal or economic interest (centre of vital interests) in the territory of the Republic of Poland, or
  • stays in the territory of Poland for more than 183 days in a tax year.

On the other hand, if individuals do not have their place of residence in Poland, they are subject to tax liability only on income (revenue) earned in the territory of Poland (limited tax liability).

As a rule, an individual who performs remote work in Poland is only subject to taxation in Poland. Indeed, the decisive criterion is the place where the individual physically resides at the time of performing remote work. However, the circumstance of the employer’s place of residence is irrelevant.

The above rule will apply to both Polish residents and non-residents. Let it be noted that the limited tax obligation concerning non-residents includes the need to settle in Poland the income obtained from work performed in Poland. Additionally, this type of person may be taxed in the country of his residence.

If, on the other hand, we are talking about a Polish tax resident who performs remote work on the territory of Poland for a foreign employer, the remuneration obtained in this way is subject to taxation only in Poland. The method of avoiding double taxation will not be applicable, as this type of income is subject only to Polish tax.

It should also be kept in mind that pursuant to Article 44 (1a) (1) of the PIT Act, taxpayers earning income without the intermediation of payers from a foreign employment relationship are obliged to pay advances on income tax without notice during the tax year.

It is worth noting specific income (revenue) is subject to limited tax liability under the Polish PIT Act. These include, in particular, income (revenue) derived from:

1) Work performed in the territory of Poland on the basis of a service relationship, employment relationship, employment contract or co-operative employment relationship, regardless of the place of payment of remuneration;

In this case, the income is subject to taxation in accordance with the general rules, i.e. according to the tax scale (12% or 32%). A foreign employee is obliged to submit a statement on the amount of income earned (loss incurred) in a tax year (PIT-37) as a rule by 30th April of the year following the tax year.

2) Activities performed by an individual in the territory of the Republic of Poland, regardless of the place of payment of the remuneration;

They are subject to 20% flat rate personal income tax. The taxpayer in this case is the payer of the remuneration and to him are assigned all the duties related to the settlement of the remuneration. Accordingly, the employer prepares information on the amount of income (revenue) earned by individuals not residing in Poland (IFT-1R) and submits it both to the taxpayer and to the tax office competent for taxation of foreign persons.

Polish non-residents in such a case are not required to file a declaration. However, they have this possibility if they are a resident of the European Union, the European Economic Area or the Swiss Confederation. The submission of a declaration by a non-resident may be more advantageous for him in terms of the tax burden. It will enable him to be taxed according to the tax scale rather than the flat rate of 20% and to take into account deductible expenses and benefit from tax preferences.

The lump-sum tax collected will constitute an advance payment of personal income tax. A non-resident must additionally attach to his tax return a certificate of residence of the country in which he has tax resident status.

However, this requires that Poland has a double taxation treaty or other or other ratified international agreements to which Poland is a party, so that the tax authority can obtain tax information from the tax authority of the country in which the person is resident.

3) Business activities conducted on the territory of Poland; Real estate located on the territory of Poland (this also applies to the sale of such real estate).

Remote working in Poland and social security contributions

Pursuant to Article 6 (1) of the Act on the Social Insurance System (hereinafter: ‘the ZUS Act’ individuals who are, i.a, employees on the territory of the Republic of Poland are subject to compulsory pension and disability insurance.

In turn, EU regulations indicate that social security contributions are paid in the country where the work is carried out and are only paid in one EU country (Regulation (EC) No 883/2004 of the European Parliament and of the Council of 29th April 2004 on the coordination of social security systems, Regulation (EC) No 987/2009 of the European Parliament and of the Council of 16th September 2009 laying down the procedure for implementing Regulation (EC) No 883/2004 on the coordination of social security systems).

In certain situations, however, it is possible for an employee to remain under the social security of the country in which his employer is based. However, insofar as such a situation does not occur and Polish regulations apply, answering the question – who is responsible for the payment of ZUS contributions – it is permissible to conclude an agreement between the foreign employer and the employee for the employee to take over the obligation to settle the contributions. The agreement should be signed no later than the date of the employment contract.

Once it is signed, the employer sends the employee salary plus the part of the contributions it is obliged to pay for the employee. From them on, the employee is obliged to pay contributions to the Social Security on behalf of the employer. The signing of the above agreement does not relieve the employer from the obligation to pay contributions and, if necessary, the employer is obliged to cover any accounting costs.

In the absence of such an agreement, the employee is obliged to pay for himself and to send a DRA declaration to the Social Security Institution (ZUS) every month. The employer, on the other hand, should:

  • apply for a NIP number in Poland,
  • register in Poland as a payer with ZUS (ZUS ZPA),
  • make a notification of the employee (ZUS ZUA) and pay contributions for employee.

Tax implications – CIT

Employing an employee in Poland remotely carries the risk of creating a permanent establishment in Poland for tax purposes. The tax authorities may consider that the foreign employer has a permanent establishment in Poland, which will entail CIT taxation of such employer in Poland. In such case, it will also be mandatory to register the company in Poland, which also associated with additional formal obligations.

In this case, each situation must be examined individually. For example, in the view of the tax authorities, giving computer equipment to employees means involves having a permanent establishment in Poland, which could be, for example, the employee’s flat.

However, the administrative courts note that for there to be a permanent establishment, the following conditions must all be met:

  • the existence of a place of business,
  • the permanent nature of such an establishment,
  • exercise by undertaking an economic activity that is not preparatory or ancillary in nature.

In view of the above, foreign employers who plan such cooperation with their employees or subcontractors should carefully examine the terms and conditions of employment, in particular the scope of duties to be performed. This is because there is a risk that a permanent establishment (and thus a tax obligation) may arise in Poland for the activities performed.

On this problematic and risky issue for many foreign employers, we have prepared a separate article on our blog, which will be published soon.

In this article, we have outlined the basic principles of the taxation/taxation issue for employees performing home-office work in Poland but for a foreign employer. However, in practice, each case is different and there may be different to approach particular issues/different solutions. In a series of articles on the topic of GMTS, we will present you with potential cases along with an overview of their consequences in terms of tax law and the most favourable solutions.